Despite the spin, new report shows NPEs are responsible for a fraction of European patent litigation

For several years executives from various US-based NPEs have been talking about the much more appealing litigation environment in various European countries as they have seen the climate become far tougher in their home market.

Germany, in particular, is probably the jurisdiction US patent owners of every stripe talk about most because of the potential injunctions the courts of Europe's largest economy offer to victorious plaintiffs. In a post-eBay America, that's enough to attract a lot of attention.

But talk is one thing, action quite another; so just how much NPE litigation has hit Europe in the last decade?

Thanks to a report released yesterday by Darts-IP we now have some answers. However, you should read the numbers extremely carefully; and when it comes to spin about the report’s findings applied by IP2Innovate – a lobbying organisation that represents a number of big technology companies including the likes of Google, Intel, Microsoft and SAP – you need to be very careful indeed.

First, the headlines. The Darts-IP executive summary states:

• Between 2007 and 2017, the average annual growth rate of actions related to NPEs registered in the Darts-IP database was 19%.
• The five most active NPE company structures in the EU are based in the United States (US). They account for 60% of NPE-related litigation in the EU. Hundreds of NPE entities and affiliates are linked to major NPE company structures.

Now here’s the opening of an IP2Innovate press release, which comes with the headline “Patent abuse is damaging digital innovation in Europe”:

European innovation is increasingly under attack from patent assertion entities (PAEs) and particularly from US-based PAEs who now file the majority of PAE suits in Europe. This is the conclusion evident from the information presented by the world’s leading authority in intellectual property case law data, DARTS-IP

Now, let’s contextualise.

What the Darts-IP report actually shows is that 173 “new NPE actions” were filed in Europe last year, up slightly from 169 in 2016 and a jump from 119 the year before that (there is a Q&A with Darts-IP on some of the issues raised by the report at the bottom of this piece).

“New NPE actions” refers to patent disputes where an NPE has featured either as a plaintiff or as a defendant, and so can include – for example - an opposition challenge at the Europan Patent Office or a national patent office.

In fact, between 2007 and 2017 just 42% of NPE actions identified by Darts-IP actually involved an NPE bringing an infringement suit. That equates to around 475 suits filed by NPEs in the whole of Europe in 10 years. Last year, approximately 73 suits were filed, while 71 were filed in 2016. Overall, Darts-IP tells us that it has identified around 3,000 patent suits filed in total in Europe in 2016 and 2017. Thus, NPEs were responsible for filing under 5% of European patent suits in the last two years.  

Of these suits, Darts-IP finds that in just under 25% of cases, SMEs – defined as businesses with a turnover of or below €50 million – were involved as defendants. Put another way, that means that in the last 10 years there have been around 120 NPE suits filed in the whole of Europe against SMEs. According to data from the European Commission, there were just under 23 million SMEs in the EU in 2015. Thus, there is something like a 0.000005% chance of an SME in Europe being sued for patent infringement by an NPE.

Darts-IP does caution that the numbers for 2017 are still being collated so the totals represent an estimate.

According to the report, Germany leads the way as the most popular venue for NPE actions followed by the UK, the Netherlands, France and Italy. The report claims that cases filed in Europe’s largest economy constitute almost 20% of all patent lawsuits filed there. We asked Darts-IP about this:

Q. The 20% figure for German infringement suits being filed by NPEs is slightly confusing. If there were under 100 suits filed across the whole of Europe last year by NPEs, doesn’t that imply a very low rate of infringement suits overall in Germany? Our understanding has always been that there were many hundreds of patent suits filed in Dusseldorf, Mannheim, Munich etc annually – but your data seems to indicate that this is not the case and that the number is much lower. Are we missing something here?

A. The number of cases that reach settlement, as well as withdrawals in very early procedural stages in Germany (the collection of which is impossible), should not be underestimated. The Darts-IP report and data set reflect cases collected by Darts-IP. For Germany in particular, this means cases that reach at least a preliminary hearing. It is a known fact that a large number of actions filed end up being settled or withdrawn, and those actions are, unfortunately, not included in the Darts-IP case law collection. It is quite likely that the number of actions filed by NPEs in Germany is higher, if taking into account this un-obtainable information. 

The report also includes a ranking of the NPEs which undertook most assertions in Europe between 2013 and 2017. It's a list which reads more like a who’s who of fallen patent players than clear and present threats.

Intellectual Ventures takes the top spot, although it now seems to be more interested in flogging its assets than global litigation. Marathon comes in at number two but it is now more concerned with mining bitcoin than asserting IP; and Acacia, which has recently announced an investment in a burger-flipping robotics company as it also looks to move out of the patent assertion business, takes the third spot. Further down, FORM Holdings is in fifth, although it has also gone through its own evolution from Vringo to FORM and now XpresSpa, which is leading the way in airport-based spa offerings.

As an example of how reforms to the US patent system have devastated the American NPE market you don’t need to look much further than that quartet. But as ongoing asserters of patents in Europe; well, let's just say we are unlikely to see them popping up as plaintiffs in many more cases.

In the US, we have seen some large technology companies and others create a narrative about abusive patent litigation conducted by trolls in order to secure reforms to the patent system that have worked very largely in their favour. It seems that IP2Innovate may well now be trying to do the same in Europe. Let’s look at its press release again:

DARTS-IP’s comprehensive study of the past ten years of available patent litigation data in Europe reveals increasing activity by PAEs, also commonly known as “non-practising entities” (NPEs) or “patent trolls.” There has been a 20% year-on-year jump in PAE litigation. US-based PAEs initiated most of those suits (60%) and targeted applications of information and communication technologies (ICT) (75%). As application of ICT is central to innovation and growth across many industries, the consequences of these attacks will be far-reaching. Most importantly, data shows that it is not just large companies who are affected — almost a quarter of the unique defendants are European SMEs. Germany is the preferred venue, with 20% of all German patent litigation having been brought by PAEs.

Seriously? Remember we are talking about a situation in which under 5% of all patent suits in Europe are filed by NPEs; where there is a 0.000005% chance of an SME being sued by an NPE; and where most of the most active NPEs in Europe identified in the Darts-IP report are no longer focused on being NPEs! Notice, by the way, the seamless way in which NPEs become “patent trolls”, even though the European patent litigation system is entirely antithetical to the way in which trolls make their money in the US.  

The IP2Innovate release also features quotes from two members of the European Parliament, including one from Mady Delvaux from Luxembourg who claims: “The future of artificial intelligence, the internet of things and the digital economy are being put at risk. In order to prevent abuses, we need to make sure that Europe’s patent legal system operates effectively for both litigants and society and supports digital innovation in Europe.”  

For his part, IP2Innovate’s chairman Kevin Prey warns: “Without rigorous implementation of safeguards by Member States, abusive litigation practices will undermine European innovation.” He adds: “The European Commission and the Member States should move quickly to provide investors and innovators with greater protections, particularly in terms of increased transparency and litigation data.”

Anyone who has followed the debates around patent reform in the US will be all too familiar with this playbook. Cast all NPEs as “patent trolls” and anyone who doesn’t manufacture products as a litigation abuser, and jump on some form of statistical analysis as proof that something needs to be done. It is a form of advocacy which casts NPEs as the bête noire of all operating companies, but ends up making it harder for any patent owner of any kind to assert its rights.

And let’s put these numbers into further context: 1,130 “NPE actions” between 2007 and 2017 compares with a total of 2,099 new lawsuits filed by NPEs in the US last year (according to Unified Patents). That doesn’t even include the number of IPRs or declaratory judgments brought against NPEs by alleged infringers.

In other words, any NPE “problem” in Europe is minuscule and hardly looks like a threat to the future of AI, the IoT and the digital economy. And that is before we even get into a wider debate (again one that will be all too familiar to US readers) about whether NPEs are inherently bad and pose a risk to innovation in the first place.

The truth is that while NPE actions have undoubtedly risen in Europe, they are only a very small part of the overall picture. It does not help any debate around how to improve the patent system in any country for a politician to claim that the future of some fundamental technologies is suddenly at risk because NPEs brought 73 cases last year in an economic block which has a GDP of just over $17 trillion and a population of more than 400 million.

It’s hard to quibble with any suggestion that we need more data on all patent litigation in Europe, but it’s clear that interest from NPE executives in bringing infringement cases in Europe has translated to remarkably few lawsuits.

Q&A with Darts-IP

Can you confirm that you identified 173 NPE patent-related actions across Europe in 2017 and 169 in 2016?

We confirm that these are the number of cases identified at the date of writing the report (with 2017 being an estimate). However we have already captured several new cases of which we had no prior information. Darts-ip collects case information from all procedural stages. However in some jurisdictions only the late stages are visible. This means that we might only identify now some cases that were filed in 2016. It also means that all the cases filed that to do not reach a hearing or no decision is issued will not be part of the data-set.

Can you clarify what you mean by an NPE patent-related action?

As mentioned in the glossary of the report, we consider patent related actions as any actions filed before judicial courts or IP offices, which aim at asserting, challenging or exercising any right in relation to a patent. “NPE patent-related actions” will be any of those actions involving NPEs, either as plaintiffs or defendants.

Does a patent-related action include actions launched against NPEs by third parties?

Yes, patent related actions include actions launched against NPEs.

Would it be fair to say that NPEs are defendants in patent-related actions in Europe more often than they are plaintiffs?

That statement would not be accurate, since one single infringement action may simultaneously concern several patents and several defendants, which in turn may result in a plurality of validity challenges, for instance, if a group of patents is asserted, those will have individual and separate opposition actions/procedures before the EPO, same thing may happen before national courts.

In several jurisdictions there is a judicial practice of joining infringement claims which are related. For those situations we will count the whole group of joined actions as a single case.

Would it be correct to say that 42% of NPE patent-related actions are suits filed by NPEs?

According to the data effectively collected by Darts-IP, which, however, does not include early procedural settlements as those are unavailable (and possibly represent a relevant number of total suits filed by NPEs), that statement would be correct. We take this opportunity to remind that one single infringement action may concern a plurality of concerned patent rights, a plurality of defendants and might consist of several joined actions.

If that is the case, would it be correct to say that according to your data something like 71 suits were filed by NPEs in Europe in 2016 and 73 were filed by NPEs in 2017?

That estimation would be in accordance with our estimation. Darts-ip is still collecting data from hundreds of courts so cases are still adding up.

If that is the case, would it be correct to say that under 20 patent suits were filed against SMEs in Europe by NPEs in both 2016 and 2017?

Yes, that would be a correct assumption. However, it should also be said that actions filed against NPEs are commonly filed against several defendants within the same actions. In situations like these, the number of defendants in these actions may be over two dozens separate SMEs.

How many patent suits in total do you estimate were filed across Europe in 2016 and 2017?

We are by far the largest database of IP litigation in the world. We have identified around 3000 active patent cases in judicial courts in the last 2 years in Europe (this doesn’t include actions filed before IP offices).

Can you give a breakdown of NPE patent-related actions per country for 2016 and 2017 – in absolute terms and also as a percentage of patent suits filed?

Unfortunately this information is reserved to our subscribers. We can however reconfirm that the 5 most affected jurisdictions in terms of NPE initiated litigation are Germany, Italy, The Netherlands, The United Kingdom and France.

Can you provide more data on your claim that one in every five infringement actions in Germany is brought by an NPE? There does not seem to be anything in the report that backs this claim up.

Figure 4 of the report represents the total number of infringement actions registered in the Darts-IP database, for the last 5 years. According to our data, 19.5% of all infringement actions registered have been filed by NPEs. We realize that the wording “NPE litigation” might have been misplaced in the heading of this chart (even though the meaning of the graph can be understood by the text in the relevant page), we have amended it to “NPE initiated infringement actions” in our latest version of the online report, for clarification purposes.

Additional reporting by Joff Wild 

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